debt buyer

Getting served with a debt collection lawsuit is one of the more upsetting things that can happen to you. When a process server hands a summons and complaint to you (or to someone you live with who can accept service), it means a debt collector is dragging you into the legal system.

And while getting served with a debt collection lawsuit is not fun, it is not the end of the world. In fact, that summons and complaint—legal process—provides rights to both parties to the case. Which means as a defendant in a debt collection lawsuit, you now have access to tools to defend yourself.

Let’s take a look at the first few parts of a lawsuit to try to dispel the fear and misunderstanding.

Debt collection and bankruptcy news has been piling up in my queue, and since I can’t hope to give each post the attention it deserves, here is a grand roundup.

It should be no surprise that a bad economy leads to increased bankruptcy filings, but the economy’s health and bankruptcy filing rates are not inextricably linked. Bankruptcy filings have a lot more to do with debt. And since banks weren’t lending to consumers 2–3 years ago, it makes sense that bankruptcy filings are decreasing. [Credit Slips]

North Star Capital Acquisition, a Minnesota debt buyer, threatened one of my clients, called him repeatedly, and used profanity in several of the phone calls. For example: “You can do anything you f**cking want, but we are going to get this money from you one way or another.”

Shortly after we filed the Fair Debt Collection Practices Act lawsuit, North Star offered to settle for statutory damages, plus attorney fees and costs. Interestingly, North Star offered $500 as a “default” for attorney fees and costs. I find this amusing, since North Star’s law firm, Messerli & Kramer, regularly demands well over $1,000 in attorney fees for collection lawsuits it drafts by the hundreds. (North Star paid our actual fees in the end.)

Getting served with a debt collection lawsuit is bad enough without the risk of jail time. But ignoring a lawsuit could lead to a bench warrant—and possibly a short jail visit—in some circumstances. Make sure it does not happen to you.

Debt buyers may not have any evidence to support their collection lawsuits, but that does not stop them from harassing consumers. According to yesterday’s lead story in the Star Tribune, debt buyers bring lawsuits with nothing but a row of numbers passed along by the previous owner of the debt, then support them with bogus “proof.”

Some debt buyers take more extreme measures. Thomas Labeaux, owner of Debt Equities, apparently trapped a consumer in her driveway, pretending he was a sheriff and threatening to take her newborn into protective custody if she did not pay a debt.

Why the need for the rule? Debt buyers and collectors file tens of thousands of lawsuits against Minnesota consumers every year, and probably serve at least as many that never get filed. But debt buyers should lose most of their lawsuits, if challenged.

Although skeptics argue that Woody Allen’s famous observation over-simplifies the path to success, consumers sued by debt buyers will benefit from following Woody’s advice.

Of course, a debt buyer is a business that purchases debt from the original creditor and then sues consumers to collect the debts. Because the debt buyer did not originate the debt, it is at the mercy of the original creditor to provide it with evidence to prove its case. In some cases, the original creditor doesn’t provide the debt buyer with any evidence of the debt. And when the original creditor does provide evidence, it often is just a single billing statement that was generated long after the account became delinquent.

Although it seems counterintuitive for debt buyers to initiate lawsuits without knowing what, if any, evidence exists to prove their claims, debt buyers nonetheless initiate thousands of lawsuits each month. Why? 95% of collection lawsuits proceed by default and result in judgments being entered against consumers without the debt buyer having to prove its case. This basic premise is why collecting purchased debt is a thriving sub-industry. Debt buyers know that they can obtain thousands of judgments without having to produce a single piece of evidence.

Which brings me back to Woody. If you are sued by a debt buyer, it is crucial that you show up, or respond to the lawsuit, and engage in the litigation process. This will force the debt buyer to prove its case in court. Often they can’t.